To Create a Sustainable Future, We Need to Fix our Global Financial System Now

Established eight decades ago, the current global financial system is outdated, inherently unequal, and failing to meet today’s issues. Lower income countries are being trapped in unsustainable cycles of debt, which stymies economic growth and development.

Renewed global cooperation can turn this around. The Fourth International Conference on Financing for Development (FfD4), in Sevilla, Spain, from June 30 to July 3, 2025, can be a transparent and inclusive intergovernmental process that gives every country a voice. Delegates from UN Member States have been working together since July 2024 to ensure the Conference advances a renewed global financing framework, and they will head to Sevilla with a negotiated outcome document in hand.

I spoke with Julie Garfieldt Kofoed, Senior Director for Sustainable Development Initiatives at the UN Foundation, and Clarke Sumbule Wafula, Financing for Development Consultant at the UN Foundation, on the imperative of seizing this moment to advance long-sought reforms, and the big issues they want to see Member States get right at FfD4.

The conversation has been edited for clarity and length.

The Global Financial System Needs an Urgent Update

Megan: We often hear that the global financial system is broken. What does that really mean, and what is at stake?

Julie: A good place to start is with what UN Secretary-General António Guterres has said, because he has been quite clear about the need for international financial architecture reform. He has pointed out that the system, which was established following the Second World War, has neocolonial connotations. It was built in a very unequal way that gives the few a much larger say than the many in global financial discussions.

And the issues we’re confronting now are different from those of the last century. Climate change, for one, is a big issue that UN Member States are grappling with today using a system that was not sufficiently set up to deal with such challenges.

Another issue centers around risk assessments and borrowing costs. In this skewed system, there are very few credit rating agencies and they do not have a transparent process for assessing risk. Developing countries end up being assessed on too strict of a basis, so their cost of borrowing is very, very high, which locks them in a cycle of debt.

A very simple way of thinking about this is in terms of personal finance. If you have to borrow on a credit card with a 25% interest rate, it’s going to be very hard to pay that back. Now compare that to someone who takes a personal loan with a 5% interest rate. Two individuals may find themselves in a very different situation based on an assessment by the financial system, like a credit score.

Clarke: To add to what Julie said, the global taxation ecosystem is another critical issue. Taxation is one of the ways that countries can address their financial challenges, but the current global taxation system works in favor of developed countries.

There are large multinational corporations headquartered in the Global North but with operations in the Global South, where they generate a lot of value. But because their taxing rights are in the Global North, they do not pay taxes in the Global South despite the value they gain there.

Related to that is the issue of financial outflows. The African continent loses between $500 billion and $600 billion each year that is generated but not mobilized, including in the form of illicit financial flows, and that amounts to nearly as much as the Continent’s $656 billion in external debt. Weak governance structures in developing economies are a factor, but there is also an enabling environment in the Global North that contributes to these illicit financial flows.

Megan: These are long-standing issues. What’s changed that has increased the pressure and urgency to act?

Julie: At this point I think it’s very well understood that the countries that bear the brunt of climate change are not the ones that have contributed to the situation. There’s a sense of inequality and unfairness built into that reality.

Some of the countries that are severely impacted are Small Island Developing States, and there are so many examples of those countries borrowing money to support infrastructure projects that are then destroyed by extreme weather. Take building a bridge. When the next storm comes along, which is more intense and dangerous than previous storms, the bridge is wiped out. So the government has to borrow money again to rebuild the same bridge. Now the government has to repay two loans for just one bridge, and it’s only a matter of time before another storm strikes.

One of the ways this can be addressed is through disaster clauses in loan agreements, which allow governments to halt loan repayment in the event of a natural disaster. We have seen some progress in this regard. Barbados was instrumental in ratcheting up the pressure to include these clauses through the Bridgetown Initiative, a proposal to reform development and climate finance.

Key Issues at the 4th International Conference on Financing for Development

Megan: Why is FfD4 the make-or-break moment to push for progress?

Julie: To understand FfD4 we have to go back to 2015, when the world came together and committed to a trio of agreements. It started with the Addis Ababa Action Agenda, quickly followed by the Sustainable Development Goals and then, the Paris Agreement on Climate Change.

The Addis Ababa Action Agenda was tied closely to the SDGs; it was adopted at the Third International Conference on Financing for Development and intended to be a road map for Member States to sufficiently finance the Goals. Now, 10 years later, we are well aware that the SDGs are off track, and one of the biggest hurdles has been financing for development.

Clarke: There’s a $4 trillion annual gap in financing for the SDGs. FfD4 is specifically looking to address this gap.

Julie: We want to see FfD4 focus on two areas in particular: debt handling and new money. While the outcome document addresses many important issues, like illicit financial flows and private sector mobilization, addressing the debt crisis has really become the heart and soul of the document.

Megan: What do you hope to see Member States achieve at FfD4, specifically?

Clarke: There are several important issues we are looking for Member States to address in the outcome document.

On debt, the first key issue is responsible borrowing and lending to prevent the debt crisis. One of the main proposals on the table to address this is the creation of a UN-led working group on borrowing and lending principles. As Julie mentioned, there are disaster clauses related to climate finance and then there’s also a suggestion to strengthen borrower coordination platforms. Usually, borrowers are up against big economies and private sector companies, and the power imbalance is too much to overcome. A borrower platform that enables developing countries to coordinate and align on different principles would help alleviate this challenge.

Second, and one of the biggest, and most contentious, proposals is on restructuring the debt architecture. The G77 [Group of 77 developing economies] and the African Group are pushing for an intergovernmental process at the UN to close gaps in the debt architecture. This could take different forms. Currently, Small Island Developing States and the African Group are aligned on having a debt convention at the UN, but most developed countries have strictly redlined this, so it’s going to be contentious. But the proposal is on the table, and it might land on some variation of an intergovernmental process. Another aspect of this is improving the G20 common framework; the idea is to work within and to optimize existing systems, processes, platforms, and principles.

The last proposal I’ll mention on debt is debt sustainability and assessment. Most developing countries pay what can be considered a “developing country premium.” The way credit rating methodology currently works doesn’t favor developing countries. In fact, it assumes a super high-risk premium. So, there are proposals to improve this methodology and long-term assessment so that credit rating agencies don’t penalize countries that go through a restructuring, for example.

Beyond debt sustainability we’re focused on special drawing rights, or SDRs. As fiscal space and resources shrink amid geopolitical and trade tensions, one of the only options available to us is to be innovative with existing financial mechanisms, like SDRs. Rechanneling SDRs through multilateral development banks is seen as one of the few proposals that can generate new money, the second part of the two-part headline Julie mentioned.

And finally, domestic resource mobilization is also a priority, which is in parallel with the Framework Convention on International Tax Cooperation being negotiated at the UN. The key proposal here is addressing illicit financial flows. Then there’s the proposal on taxing rights — that is, taxing multinational corporations where they create value and taxing high net worth individuals. In short, it’s about international tax cooperation: addressing illicit financial flows and taxing entities where they create value.

Megan: In an ideal scenario, what would you like to see in the final agreement? What are some of the key ingredients for a successful outcome?

Julie: All the things that Clarke just described! But there’s another layer to this in addition to the substance of the actual agreement, which has to do with this moment and the pressure that multilateralism is under more broadly. There’s a real need to demonstrate that countries can still come together and do meaningful, impactful, realistic things that will be implemented.

This is one of the first deliverables following last September’s Summit of the Future. The Pact for the Future was heavily focused on financing for development, and this is an opportunity for Member States to deliver, both in terms of concrete reforms that need to happen and in terms of setting up processes that will set us up to better handle some of these issues in the long run. There’s a sense of hope and optimism right now that a better path forward will come from this.

Invest Now for a Sustainable Future

Megan: Do you think these are realistic aims? What’s your message to UN Member States as they head to Sevilla?

Julie: Member States, in particular those in the European Union and other developed countries, need to understand that this opportunity is much bigger than the technicalities that will, in due course, get sorted out in the minutiae of finance. There’s an opportunity to see this as something bigger, a new approach to how we view sustainable development and making sure that it’s a win-win undertaking.

We have to ensure that countries do not feel like they are destined to be at the bottom of the pyramid, which is the perspective of many of the ambassadors from the Global South negotiating the outcome document. And in the Global North, development is always seen as a zero-sum game when it could be a win-win scenario if everyone pulled together.

Megan: Can you share an example of a win-win scenario for sustainable development?

Julie: The opportunities are endless. The opportunities around renewable energy on the African continent are massive. And if you have a much longer view, you can easily imagine a world where we build a solid foundation for sustainable development in some of those countries that have otherwise been left behind, while simultaneously meeting the Global North’s energy needs and the world’s climate goals.

I think it’s about having a lens that’s long enough. We have to make the right investments now to set us up for success in the long run. If we don’t, we are not going to have a viable, livable planet — for any of us. I mean, we are quite literally on one globe together. We have to understand that it’s not about them over there and us over here.

Clarke: Trade. This is one of the sections in the outcome document that the African Group is really pushing. Because there are endless possibilities on renewable energy, as Julie was saying. For example, electric vehicles rely on critical minerals but there is currently no global architecture that ensures African countries, which are home to many of these minerals, benefit from their extraction. If they do benefit, it’s easier for developed countries to benefit as well. That’s just a basic win-win scenario.

Julie: Can I make one final point? Developed countries that are scaling down their ODA [Official Development Assistance] have a responsibility to make sure that developing countries are actually able to help themselves. There’s a responsibility to reform the outdated global financial system to make sure that everyone can work within the system to support sustainable development in their economies and societies. That’s the result we’re all striving for.